Starhub signed a network leasing agreement back in 2002 with Singtel when it merged with SCV, which relegated StarHub to the sidelines of the lucrative corporate broadband market.
'What made it (the agreement) worse was that it contractually prevented StarHub from taking the benefits of a high-speed cable broadband network beyond the residential community,' Mr Clontz said.
While StarHub could choose to lay its own cables to link up non-residential buildings, the prohibitive cost meant the firm largely stayed within its consumer boundaries in its first decade. However, the operator will get a chance to banish old demons come end-2012 when Singapore's new fibre-optic broadband highway - dubbed the Next-Gen NBN (National Broadband Network) - becomes fully operational.
StarHub currently has access to only 800 buildings within the central business district but this number will become 23,000 once the new network is up and running.
To me, this is another piece of good news plucked from the chronicles of Starhub, Singapore's 2nd largest telecom operator. This potential for growth in the corporate market is great, and would ensure that Starhub's dividend yield would likely be sustainable come year 2012, 2 years from now.
Given Starhub's track record, I'm pretty sure they will come up with something quirky and out of the box by then to force Singtel to react. The track record includes free dial up internet, free incoming calls, and most recently, 12GB data plans for iphones.
The main factor that might stop reduce the potential earnings comes not from another competitor, but from another technology, namely mobile broadband. This is a form of cannibalism in the broadband market, although it offers greater flexibility and choice to consumers like us. The benefit of this? Starhub will not be limited by any contracts or leases, and will be able to compete on equal footing with Singtel.
Recently, I took a look into Cerebos Pacific's financial report as well. Interestingly, Cerebos Pacific also distributed a DPS (dvidends per share) greater than it's EPS (earnings per share) in 2005 and 2006. It was in 2007, 2008 and 2009 that their EPS exceeds their DPS, and looks set to grow further. I do not have any access to past analysts report on this company, but I would have to say that if we trust the management, this dividend is definitely sustainable for the next few years. I'm forseeing that the same thing that happened to Cerebos will also present itself in Starhub, a company in an industry that's much more defensive, with much higher barrier of entries, as compared to Cerebos itself.
In addition, as mentioned earlier, Starhub's free cash flow stands at >26 cts per share, and it had managed to reduce it debts further in 2009 although it is giving such a nice dividend payout.
And again, the main worry is in the EPL pay-TV market, in which Starhub lost the broadcasting rights to Singtel. How this pans out will have to depend on the year end reports, but I'm not expecting much changes. Will I pay for my stubborn belief?
I have confidence in Starhub's management and its ability to exceed expectations again. The final blow to the analysts' report will come if and when Starhub raises its dividend payout to 5.5 cts come 2011 or 2012. Then again, even if Starhub drops its dividend payout to 4.5 cts next year, I don't mind because my entry price was excellent and I would have collected at least 20 cents dividends by year end. Key phrase here is Excellent Entry Price... in terms of technicals and fundamentals.
In short, I will buy a lot more if I can afford when Starhub goes to $2. But will the market makers be so kind to let me buy at those prices again? We shall see.
Meanwhile, I shall just enjoy my yearly $2k dividend yield from Starhub :)